Small Business

Long-term entrepreneurship on Main St looks 'stagnant': Report

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Reversing a six-year downward trend, Main Street entrepreneurship rose in 2015 — with a boost from very small companies of fewer than 10 employees, according to an annual gauge of small business by the Kauffman Foundation. The entrepreneurship gains, however, appear short-term as activity overall remains below prerecession and historical levels.

For 2015, the Main Street Entrepreneurship Index came in at 0.07, which is above the historical average reading of zero. The index reading reverses a downward trend for small business activity that began in 2009 during the recession, according to Kauffman, which released the latest annual index Wednesday.

While Main Street ticked higher year over year, long-term trends don't look so encouraging, said Arnobio Morelix, senior research analyst at Kauffman. Over a long horizon, the trends are "mostly stagnant," he said.

For example, saddled with rising student debt, among other factors, the number of young business owners is declining. And across the board, the percentage of American adults owning businesses continues to fall compared to the 1990s.

Historically, Main Street entrepreneurs have been key drivers of local economies. Established small businesses make up 63 percent of all U.S. employers. But even with the Great Recession behind us, the Kauffman data suggests some pockets of entrepreneurs are trying to find their footing in the new economy.

"Despite the recent year increase, long-term trends of Main Street entrepreneurship do not look as encouraging," according to the report.

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Areas of concern

For example, the rate of business owners — or the percentage of adults owning businesses in a given month — has been declining since Kauffman started tracking the rate in the 1990s. That rate is flat year over year at 6 percent for 2015, and lower compared with 7.8 percent in the late 1990s.

Another weak trend is fewer younger entrepreneurs between the ages of 20 and 34. The rate of business owners among this age group was 2.8 percent for 2015 compared with more than 4 percent in the late 1990s. As Morelix explained, the younger generation faces hurdles including securing a job, paying off student loans and saving for the future.

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The power of small

On the bright side, a key driver of entrepreneurship this year was micro-enterprises defined as those operating more than five years with 10 or fewer workers. Some entrepreneurs appear focused on starting really small ventures, and keeping hiring to a minimum. And this disciplined approach to small business growth is paying off.

Total established micro-enterprises grew by 3.6 percent in 2015 from the 2014, compared to a 1.2 percent growth for all other established small businesses, according to the research.

Broken down further by sector, established micro-enterprises have substantially more presence in the finance, insurance, real estate and the services sectors, according to Morelix of Kauffman. In contrast, other established small businesses with 10 to 49 employees had an over-representation of manufacturing and retail.

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